Industry Preps for Device Tax While House Republicans Rally Around Repeal

As the reality of the medical device tax draws fretfully near, industry supporters and medical device manufacturers are ramping up efforts to raise awareness of the damage it could cause while continuing to seek repeal. But will this combination of rallying behind repeal and painting a doomsday scenario under the tax ultimately pay off for the medtech industry?

Medical device manufacturers are certainly hoping so. Obviously opposed to the burdensome 2.3% excise tax slated to go into effect in 2013, medical device OEMs are becoming increasingly vocal about the negative impact that the tax will likely have on jobs and innovation as the dreaded date draws near. Adding fuel to the anti-tax fire this past week was industry giant Medtronic, which announced that it expected that the tax would cost the company somewhere in the range of $125 million and $175 million annually.

“We’ve looked at this as basically one of the costs we’re going to have to cover as we put together our plans for fiscal year 2013 and as we put together our initiatives on a long-term basis,” Medtronic CFO Gary Ellis said in a conference call with investors. “We’re going to have to make the tradeoffs, and there’s probably going to be things that we can’t do as a result of that. It means we won’t have as much to invest going forward.”

Most medical device companies, like Medtronic, are exploring how these cumbersome costs can be passed on to hospitals and customers or consumers. Some manufacturers, however, are launching what they view as a preemptive strike to survive the tax. Unfortunately, these efforts appear to be in the form of layoffs, further bolstering accusations by critics that the tax is a job killer.

Stryker, for example, announced late last year that it would be reducing 5% of its global workforce in anticipation of the tax, which it estimates would raise the company’s tax burden by $150 million. The company anticipates that this decision would result in about $100 million in operating costs savings by 2013. “The targeted reductions and other restructuring activities are being initiated to provide efficiencies and realign resources in advance of the new Medical Device Excise Tax scheduled to begin in 2013, as well as to allow for continued investment in strategic areas and drive growth despite the ongoing challenging economic environment and market slowdown in elective procedures,” according to a press release distributed by the company.

And Stryker’s not the only company contemplating reducing headcount to compensate for the tax. Industry group AdvaMed predicts that 43,000 American medtech workers may lose their jobs if the tax goes into effect. On the flipside, global consulting company Emergo Group released a survey earlier this month that revealed that less than 17% of CEO, president, and managing director respondents said that they would cut jobs to absorb increased costs. So, it may not be all doom and gloom.

The medical device tax isn’t just the topic of conversation among medical device manufacturers, however. It’s also causing quite a stir up on Capitol Hill. Minnesota Representative Erik Paulsen, cochair of the House Medical Technology Caucus and ardent medtech industry supporter, continues to lead the charge against the tax in Washington. In a recent interview with MassDevice, for example, Paulsen predicted that the repeal effort would likely be put to a vote in the House of Representatives later this year and should have enough support to pass.

“As some of my colleagues have become more aware of what the consequences are, they’ve been paying more attention and just literally slowly signed on one after another after another almost every week for the last 6 months,” Paulsen told MassDevice. “I actually expect that this is going to move forward in the House sometime this year, hopefully sooner than later. That’s a question that’s up to leadership.”

Although it currently lacks support from most House Democrats, Paulsen’s tax repeal bill currently boasts 228 cosponsors. However, approximately 25 out of the 66 members of the Medical Technology Caucus—again, mostly Democrats—still have yet to back the bill.

“There are some Democratic members who have not signed on to the repeal bill because they’re a little nervous about acknowledging that the healthcare law they may have voted for isn’t perfect,” Paulsen commented to MassDevice. “They’re more inclined to vote for it if they get the opportunity to vote on the floor, rather than sign their name on it and deal with a sort of push-back among some of their own base.” –Shana Leonard